Freddie Mac 2010 Annual Report Download - page 302

Executive Compensation Program establishes strict recapture provisions that protect our interests as well as those of
taxpayers. The Executive Compensation Program has also been designed to position us to retain critical executives and
attract new executive talent as we continue to support the nation’s housing recovery amidst the uncertainties regarding our
future.
One key element of the Executive Compensation Program that differs from Treasury’s executive compensation
guidelines is that all compensation is delivered exclusively in cash. We cannot provide equity-based compensation to our
employees under the terms of the Purchase Agreement with Treasury, unless such grants are approved by Treasury. In
addition, uncertainty regarding our future status makes our stock ineffective as a vehicle for delivering incentive
compensation.
Participation in the Executive Compensation Program is contingent upon a Covered Officer agreeing to be bound by the
terms of a recapture arrangement that has been approved by both the Compensation Committee and FHFA. A further
discussion of the recapture arrangement is set forth below in “Other Executive Compensation Considerations — Recapture
Policy.”
Finally, although the Compensation Committee takes the lead role in considering and recommending executive
compensation, the following circumstances limit the Compensation Committee’s authority during conservatorship:
• When FHFA was appointed as our Conservator in September 2008, it assumed all of the rights, titles, powers, and
privileges of the company and its stockholders, directors and management, including the authority to set executive
compensation. Under the terms of the Purchase Agreement, FHFA is required to consult with Treasury on
compensation matters for our executive officers.
• Our directors serve on behalf of FHFA and exercise their authority as directed by FHFA. More information about the
role of our directors is provided above in “Directors, Executive Officers, and Corporate Governance — Authority of
the Board and Board Committees.”
• FHFA has directed that our Board consult with and obtain FHFA’s approval before taking any action involving
compensation or termination benefits for any officer at the level of executive vice president and above and, regardless
of title, executives who hold positions with the functions of chief operating officer, chief financial officer, general
counsel, chief business officer, chief investment officer, treasurer, chief compliance officer, chief risk officer, and
chief/general internal auditor.
• FHFA retains the authority not only to approve both the terms and amount of any compensation prior to payment to
any of our executive officers, but also to modify any existing compensation arrangements.
Elements of Compensation and Total Direct Compensation
Under the Executive Compensation Program, a Covered Officer’s target total direct compensation consists of three
elements — Semi-Monthly Base Salary, Deferred Base Salary, and a Target Incentive Opportunity. The Target TDC is
established for each annual performance cycle. Under the Executive Compensation Program, two-thirds of a Covered
Officer’s Target TDC will consist of the sum of the Semi-Monthly and Deferred Base Salaries, and one-third will consist of
the Target Incentive Opportunity. More information on the three elements of the Target TDC is provided below.
• Semi-Monthly Base Salary is paid in cash on a semi-monthly basis and provides a fixed level of compensation
designed to fairly compensate each Named Executive Officer for the responsibility level of his position. Semi-
Monthly Base Salary cannot exceed $500,000 per year, except for the CEO and CFO, or other exceptions as approved
from time to time by FHFA. For any Covered Officer other than the CEO and CFO whose Semi-Monthly Base Salary
was greater than $500,000 immediately prior to the adoption of the Executive Compensation Program in December
2009, that Covered Officer’s Semi-Monthly Base Salary was reduced to $500,000 effective January 1, 2010.
• Deferred Base Salary is earned during one year but not paid until the following year. Deferred Base Salary is provided
in two portions: a fixed portion, which provides certainty as to amount and is not subject to increase or decrease on
the basis of corporate performance, and a performance-based portion, which is subject to adjustment to provide
incentives to the Covered Officers to achieve specific corporate performance measures. Payment of both portions is
deferred until the following year as described in the next paragraph, which aligns the executives’ interests with long-
term performance and provides an incentive for executive retention.
For Deferred Base Salary earned in 2010 and subsequent years, 50% (the fixed portion) will be earned during
each quarter and paid in a fixed amount on the last business day of the corresponding quarter of the following
calendar year. The remaining 50% (the performance-based portion) will be earned and paid on the same timetable as
the fixed portion, but the Executive Compensation Program permits the amount actually paid to range from 0% to
125% based on the performance-based Deferred Base Salary funding level determined by the Compensation
Committee with the approval of FHFA. Individual differentiation is not provided for under the Executive
299 Freddie Mac